Wednesday, December 26, 2012

For those that might have lost track of the news in the haze of the holidays, The New York Times ran a strong article the day before Christmas documenting the amazing futility of disaster relief in Haiti. Among the staggering factoids:

$7.5 billion has been spent so far. That's $740 for every man, woman, and child in the country.

Three years on from the disaster, 357,785 Haitians (3.5 percent of the country's population) are still living in tent cities.

Much of the money spent went to aid-workers salaries. For instance,
perhaps $400 million of the $2.2 billion disbursed for humanitarian aide
went to U.S. Department of Defense, to pay the 22,000 troops who were
operating in Haiti.

Even well-respected aid groups spend much
of their money on staffing. One-third of the $96 million spent by Oxfam
went to management and logistics, while Doctors Without Borders spent 58
percent of its $135 million outlay on staff and transportation.

the "primary resettlement tool" most agencies are using involves handing out cash grants of around $400 per family to get people to leave the temporary camps.

Only $215 million (or less than 3 percent of the total) has been allocated for permanent housing.

An American-led project to build homes in rural Caracol cost $31,400 per house. Haitians generally build single-family homes in Port-au-Prince for one-fifth that amount--or around $6,000. As of a month ago, only 70 of the 750 homes were finished.

"No one wanted to do debris removal," Josef Leitmann, manager of the Haiti Reconstruction Fund, one of the entities set up to manage the earthquake relief, told the paper. "It's not sexy. There are no ribbons to cut." Added Priscilla Phelps, who was a consultant on some of the efforts, donors "wanted little pastel houses and kids with ribbons in their hair to put on the cover of their annual report[s]."

Part of the problem, Leitmann told the paper, was that many people--including some very high in Haitian government--wanted to use the earthquake as a tool to de-densify Port-au-Prince. "There were all sorts of fantasies about shutting down the mess that is
Port-au-Prince before people started to understand that there is a huge
amount of capital built up in the city and chaotic as it is you don’t
throw it out."

Clearly, the missing ingredient in this relief effort were the people themselves and their haphazard but effective local structures. Why shut out their initiative. Wouldn't the aid groups have been much more efficient if they had been willing to work with System D entrepreneurs and associations--in other words, with the people they were hoping to help.

Thursday, December 20, 2012

A major French industrialist has proposed a new French revolution based on super-competitiveness, to shock the country back to economic growth.

"In France, there is
not actually agreement that companies must be competitive to create
value," Louis Gallois, who this year stepped down as CEO of EADS, the parent
company of the European airplane manufacturer Airbus, told The New York Times. "We need to create that
consensus first, and after that people can fight over sharing the
benefits of competitiveness."

The problem here is that what is of value to Monsieur Gallois, who remains on the board of EADS and spoke with the Times from his "gilt-trimmed office in central Paris," wearing his "Légion d'Honneur pin," may not match with what's of value to a worker in his firm.

Indeed,
neither Gallois nor anyone else quoted in the article
specifies exactly what France must do to become competitive. The article
implies that a panoply of tax breaks, lower corporate tax rates, and
relaxed labor rules, making it easier to hire and fire, are what's needed. But this is the toolkit always
advocated by big business--achieving profits by punishing workers.

Further, the Times article notes, "Culturally, France and many of its leaders are wedded to the idea that a social safety net -- despite its expense -- is needed to protect society from the ravages of lassez-faire economics. Economists say a pullback would have to happen to ensure competitiveness."

While I'd love to endorse Gallois' vision of a French economy in which "small and midsize firms can grow and create jobs," the "competitiveness shock" proposed by a global industrialist whose firm's revenues were close to 50 billion euros in 2011 ($66 billion, U.S.) is likely out of synch with what small businesses need to grow.

Thursday, December 13, 2012

It's amazing what a change in methodology can do. In a new study, Mexico's National Institute of Statistics and Geography discovered that twice as many people were working in System D than it initially had thought.

Now, the agency estimates that 29.3 million people, or 60.1 percent of the country's workforce, is in System D. The previous estimate was 14.2 million.

How did the Institute come up with new figure? It suddenly realized that it could count "all people who are economically active but lack access to the social security system," La Prensa reports. That makes sense.

The newspaper also reports that the people in System D earn, on average, one-third less than workers in formal jobs. The article suggests that this is a difference in take-home pay, but it's hard to judge the comparison because the paper doesn't describe how the Institute measured income. It's true that System D workers often earn less, but most often they take home a larger share of their income than formal wage laborers.

Monday, December 10, 2012

Mexico's millions of street vendors have little to gain the new labor law the government has engineered to bring them in from the cold, Reuters reports.

Indeed, the news agency notes, the so-called market reforms seem little more than a transfer of rights from labor to manaement. The law, Reuters reports "aims to make work contracts more flexible by
providing for trial periods for new employees and specifies that
productivity, not seniority, should be the main criterion in assessing a
worker's suitability for a new position. It also caps the amount of back-pay workers can receive after winning a lawsuit for wrongful dismissal."

This, of course, only makes life better for big businesses, but won't do anything to improve life for System D entrepreneurs.

Similarly, part of the proposal to allow hiring of part time workers for as little as an hour a day seems unlikely to be attractive to energized entrepreneurs. And another proposal that would liberate short-term hiring ignores the fact that many firms already hire temporary workers for cash under the table.

Mexico's leaders would do well to consult "El Progreso Improductivo" ("Unproductive Progress")., by the amazing essayist Gabriel Zaid. It's only been translated into English in fragments. But what fragments there are (courtesy of Ibsen Martinez) are amazing: introducing faith into the discussion of economic progress, and evaluating bribery as an economic system.

Monday, October 15, 2012

The Guardian newspaper inadvertantly offers the summa theologica of the 'invisible hand' of the free market in their bio of the guys who won the Nobel in Economics:

'[Lloyd] Shapley was part of a four-man team that invented the board game So Long
Sucker in 1950. The four-person bargaining contest involves the players
making commitments they cannot keep and which have to be reneged upon
in order for the game to be won.'

Ah, so that's the secret of economic success: you have to be willing to lie and cheat and double-deal and bail on your promises to get ahead!

Friday, October 12, 2012

More than half of all Mexican workers do their business in System D, according to a new World Bank Study.

As this reasonable article in SmartPlanet notes, "Mexico’s vast informal market is, perhaps, embodied most visibly in
the capital’s street food culture. After the juice stands and taco shops
close in the evening, the vendors of hot candied sweet potatoes push
their stainless steel carts through the streets, pausing to blow steam
whistles loud enough to rattle windows. And the ubiquitous peddlers of tamales come out on tricycles outfitted with a recorded message that Mexico City residents hear daily, almost without fail: Oaxacan tamales, nice-and-hot tamales! Informality is even built into the system of government services: In
Mexico City, for every government-paid garbage truck driver, a half
dozen other men work as volunteers on the truck, sorting trash in order
to earn a share of tips and what is sold for recycling."

But the article also creates a confusion: the headline talks about the "sins" of the informal market -- without noting what those reputed sins are. And it reports this: "The World Bank report cites restrictive labor legislation and weak
enforcement as two factors responsible for the large share of employment
claimed by Mexico’s informal market – ills the administration of
President Felipe Calderon wants to remedy with labor law reform." (You can download the complete World Bank World Development Report on Jobs here.)

But here's a key question for the 'reduce regulation but raise penalties for working off the books' policy wonks: What percentage of Mexico's more than 20 million System D workers are really working for themselves and not engaging in wage labor? The street food examples given in the article seem to indicate that much of Mexico's System D involves entrepreneurial small business enterprises. This would make these businessespeople sole proprietors and thus immune from any of the supposed benefits of loosened labor laws. What's more, coming down punitively on this vulnerable half of the labor force would put their survival in danger. So you kick those multitude of 'volunteers' off the garbage trucks because they're not being paid a wage -- what then? How will they support themselves and their families?

If governments want to work with informal merchants and workers to find out what they need to grow, great. That's what will bring them in from the cold. But the idea that these two blunt and discredited tools (when you reduce labor protections, you up the possibility that formal business will start exploiting more workers under the newly loosened rules, and when you make more than half your population economic criminals, you push more people away from self-sufficiency and into poverty) are the solutions is simply sad.

Tuesday, September 25, 2012

The New Age reports that the Metro Pretoria government has signed a groundbreaking deal with four networks representing street hawkers to spend 10 million rand (or about $1.2 million) to give impromptu sidewalk vendors official stalls.

From the article: Tshwane mayor Kgosientso Ramokgopa acknowledged informal trade was a
contributor to the local economy, providing opportunities for emerging
entrepreneurs and creating jobs.He pointed out hawkers
plying their trade on the metro’s streets were responsible for R600m of the Tshwane fresh produce market’s annual R2bn turnover.

In other words, street hawkers alone account for 1/3 of the turnover at the city's produce wholesale market. A good economic reason to cooperate with and not exterminate these vibrant small-scale entrepreneurs.

The deal comes in response to a series of wildcat strikes, in which hawkers irate at militaristic city efforts to demolish their stalls and confiscate their goods blocked streets around the capital, News24 reported. Which shows that, if System D workers shed their fears and organize public collective actions, they can achieve great things.

Thursday, September 13, 2012

One in five owners of businesses in the UK started out in System D/the informal economy, according to a new report by a British NGO. And almost 2/3 of those who ran businesses without getting registered or incorporated reported that they did so to determine if their enterprises were viable--while only nine percent said they turned to the informal sector in an attempt to cheat the government and make more money. What's more, almost half of all merchants polled agreed that working in System D "is often a necessary step as part of the journey towards becoming a successful entrepreneur.”

The study--produced by the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) and based on in-depth interviews and a survey of 595 business owners across the UK--concludes that government should take a less punitive approach to System D businesses--and should cajol and encourage firms to formalize rather than prosecuting them for being informal. And it asks the heretofore heretical question of whether governments should learn to live with the informal economy.

Money quote:

can we learn to live with the informal economy?

the informal economy can be the perfect protective environment that many small fledgling micro entrepreneurs need as they make the transition from unemployment to the formal sphere. In this way, it is possible to conceive of the informal economy as a fixed quantum, not to be reduced in size but to be controlled in such a way that individuals flow through it as seamlessly as possible....without going some way towards accepting informality as an integral part of the economy, there is a danger of never being able to fully realise the assets of existing and would-be micro entrepreneurs who depend on this shielding environment.

Tuesday, September 11, 2012

Check out this rational yet wrongheaded economic argument parroted by The New York Times today: traffic snarls, caused in part by a phalanx of unlicensed street vendors, cost Cairo "as much as $8 billion in lost productivity, delays and excess fuel consumption, according to the World Bank."

First, there seems to be a math problem. On page 131, the World Bank report computes the total cost of congestion in Cairo as close to 14 billion Egyptian pounds. At today's exchange rate that would equal $2.3 billion, far lower number than the $8 billion number cited in the article.

But also, according to a vendor quoted in this article from Al Arabiya, each street seller actually pays 200 LE (livres égyptienne--or Egyptian pounds), or about $33, per month for the right to be at the roadside--money that is supposed to go to the government. And the article implies that if the government were willing to replace a vendor's monthly income, the payment might amount to 600 LE (approximately $100 -- or an income of about $3 a day.) Take the Times' own low estimate of 10,000 street vendors and multiply the earnings out to an annual figure and you get this: 72 million LE, or almost $12 million. That's a rock bottom reflection of how much income vendors will lose if they're forced off the street. And the full value of all their transactions is far more than that, involving leagues of wholesalers and the importers they buy from. Add in the human cost of lost livelihoods on the families of all these merchants, and you begin to see the problem with the World Bank's one-sided calculations.

What's more, The Times reports that Cairo is desperate to promote tourism and investment. Tourists, you can be sure, don't want to visit a Cairo bereft of street vendors. While the cacophony can seem chaotic and bewildering, it is also an indelible part of the Cairene experience. There's an economic value in that as well.

The larger point is that purely economic arguments make all human issues money issues. Cairo may need to take some major steps to address traffic congestion (since, as the World Bank notes, more than 1/3 of what it includes in the cost of congestion comes from excess fuel consumed in traffic jams, regulating the number of cars on the street, imposing emission controls on trucks, and bulking up mass transit options might be better answers for the city--and Al-Shorfa reports on another approach involving street vendors: creating one-day markets.). Forcing street vendors to bear the burden of what's obviously a much larger problem simply shoves the blame down on those who can least afford to suffer the consequences.

Remember: it was a street vendor in Tunisia, aggrieved that he was harassed and prevented from doing business by the government, who set himself on fire and inadvertently lit the match that started the Arab Spring.

Friday, August 31, 2012

As the local economy crashes, impromptu roadside restaurants -- what the Kinois call Malewa -- have spread at an amazingly rapid rate throughout Kinshasa, according to this article from Le Potentiel (in French). One local mechanic reports that he can get a filling hot meal for 500 CDF -- or about 50 cents.

If I'm understanding the French correctly, some of the Malewa stalls are really no stalls at all, just open-air affairs. Others are multi-story illegal constructions. And others are on the sidewalks, wedged against the walls of buildings. One restaurateur told Le Potentiel that demand is so strong she sometimes cooks six different dishes every day. She employs two young girls to help with the cooking and preparation, paying them each $1.50 a day.

Of course, even the busiest Malewa restaurants have to be worried about health issues. To prevent the spread of bacteria, one doctor told the paper, the best thing Malewa purveyors could do is wash their hands often.

Tuesday, August 28, 2012

Spain now boats a variety of alternate currencies, The Washington Post reports. From scrip -- parallel paper money -- to online exchanges, to 'time banks' where expenditures and credits are accounted for in hours, the number of Spaniards who are augmenting their world with non-Euro currencies is increasing.

These schemes is tiny, compared to the population of Spain. But acceptance is growing significantly, according to The Post. Like the conceptions of both Bernard Mandeville and Silvio Gesell, the goal of these currencies is to block hoarding and to keep the local money circulating for the benefit of the community. So, for instance, the Catalonian currency called Turutas does not grow with interest if you hold it for a time. As Ton Dalmau, one of the founders of the effort, told the paper, "We are returning money to its origins and making it purely a system of exchange.”

Money quote, from Peter North, a senior lecturer at the University of Liverpool who has
written two books about local currencies: “Instead of just being a desperate way for people to survive a horrible
economic crisis, this is part of the cooperatives, credit unions,
community banks, organic farms and recovering factories — the alternate
economy — that the Occupy movement is groping towards.”

Wednesday, August 22, 2012

Last week, Kenyan street merchants took to the streets in protest, not in commerce. They marched from Eastleigh to the Prime Minister's office to protest Chinese merchants they said were taking over the streets of Nairobi.

“The Chinese must go. Let them come and build roads. We don’t want them
to manufacture goods, export them to Kenya, and engage in wholesale,
retail and even hawking the goods,” James Thamo, one of the
protestors, told The Star newspaper.

The newspaper didn't interview any Chinese hawkers, and I have yet to see any dispatches that show any Chinese street hawkers in the Kenyan capital (this photo

captioned, "Chinese hawkers in Kitale town," simply shows a guy who may or may not be Chinese and may or may not be involved in street vending; the woman behind him--who may be hawking or may simply be entering the car--doesn't appear to be Chinese.)

I do know, though, that after the economic crash of 2008 and 2009, many Chinese firms that had previously relied on African middlemen coming to China to buy, changed their strategies and started sending sales representatives directly to Africa. I met some of them in Nigeria. And it's only one step from that to sending people to Africa to take care of the retailing.

Still, what interests me here is that the hawkers -- many of whom are unlicensed -- have petitioned the government to crack down on the Chinese, who they claim have no work permits. What's more, the hawkers complain that the Chinese are doing business even though they come to Kenya on 3-month tourist visas, yet that's exactly how most Kenyan entrepreneurs travel to China.

I like the contradictions.

UPDATE: Today, The Star reported this: 'THE government is not aware of any Chinese nationals engaged in hawking
business in urban areas, Minister for Trade Moses Wetangula has said.
However, the minister admitted before Parliament there are isolated
cases of Chinese, Somali and Indian nationals who have been “spotted”
doing business in various commercial centres in Kenya.'

“NOW, what I want is, Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted in life." Thus spoke the schoolteacher in Charles Dickens' novel Hard Times.

But, as the mischevous anarchist philosopher Paul Feyerabend noted more than a century later, "'Facts' come from negotiation between different parties."

As this KTVU news report documents, many San Francisco residents see street recyclers as a nuisance--a growing army of scavengers who strew garbage on the sidewalks. They also blame the waste pickers for higher garbage fees. That's because the city privatized its recycling program. The recyclables are picked up by a company called Recology, and, the argument goes, when the amount of material Recology can pick up and resell goes down, the rates residents pay go up. Indeed, the bins of cardboard, plastic and metal that residents set out are considered Recology's property once they're placed at the curb--so in a technical way, scavengers and bulk dealers are committing a crime (the police officer KTVU interviewed notes it's a public health violation, which gets upped to a misdemeanor for repeat offenders.)

Others, the web site sfbay.ca suggests, see these desperate and hard-working scavengers as small-scale entrepreneurs.

Street scavenging is not a small business in San Francisco, as KTVU notes: "Estimates on recycling bin theft range from $5 million to $10 million,
though it's impossible to tell how much actual material is stolen from
blue bins."

The scavengers are reminiscent of medieval merchants who engaged in forestalling--essentially setting up just beyond the boundaries of the market, selling what was available in the market for a lower price. Markets throughout the UK tried to outlaw forestalling--but the practice continued because the money to be made was enticing.

What say you? Are these folks who are combing the streets for a couple of bucks a big social problem? Are they an indication of a market created by the monopoly the city granted to the private contractor? Are they just folks trying to survive in tough times? What the facts are probably depends on where you stand--whether you're a homeowner and ratepayer, or work for the company that has the recycling contract, or if you're one of the people involved in the underground trade.

Tuesday, July 24, 2012

More on the insanity of trademarks and copyright, from a New York Times article about the London 2012 Games:

A butcher in Weymouth,
near a yachting competition site, was told to take down the five-ring
Olympic logo he had made with images of sausage links. A lingerie seller
in central England was asked to remove a display that showcased the
rings using bras and mannequins as the Olympic torch passed by....

And:

Marketers could be in jeopardy if they use two of the next four words:
“Games,” “two thousand and twelve,” “2012” and “twenty-twelve.” And
using any one of those words in tandem with “London,” “medals,”
“sponsors,” “summer,” “gold,” “silver” and “bronze” is a no-no.

Of course, the authorities are ready to prosecute "unauthorized trading" near any of the event sites.

Sheesh: when the Pope came to the UK, the police allowed street vendors to sell 'pope on a rope soap.' I hope no local costermongers are planning to sell Chinese-made 'Usain Bolt Cutters' -- because the organizers of these games clearly have no sense of fun.

Patrick Wensink writes a book called Broken Piano for President. The cover looks -- deliberately, I am sure -- somewhat like the lettering on a Jack Daniel's bottle. A lawyer for the sour mash company sends the predictable cease and desist letter. The letter's kind of cute. The author blogs about it and the lawyer gets kudos. And the author and his publisher, Lazy Fascist Press, give in and agree to change the cover.

While everyone's smiling and Wensink's basking in free publicity, I'm wondering this: where's the purported trademark infringement? The lawyer suggests that, if Jack Daniel's allows this cover, "we run the very real risk that our trademark will be weakened."

How, exactly? How many people will buy the book simply because they think it's a bottle of whiskey? (message to Amazon: maybe you should start selling booze!) And if they buy the book because they get the message (Jack Daniel's Old No. 7 is not a small-batch concoction--rather, it's a mass market drink and 'a shot of Jack' is known the world over), doesn't that just prove enduring popularity of the brand? Mightn't the book cover actually benefit Jack Daniel's, demonstrating that the brand is a cultural icon (hey: it's the first whiskey I ever got sick on!). Isn't this an example of copyright and trademarking overreach--where things that are clearly 'fair use' become problems because corporations have deep pockets and the rest of us don't?

I'm not against Jack Daniel's going after another whiskey distiller who names a new product 'Whack Daniel's' or 'Jack Spaniel's' or even 'Hack Sandles.' But a book?

Sunday, July 22, 2012

Here's a message for all the cities that are thuggishly attempting to criminalize System D street vending and hawking (yes, I mean you, Sao Paulo and Lagos, among many others): why not go after the real bad guys?

A new study has revealed that the global super-rich elite has exploited gaps in cross-border tax rules to
hide somewhere between $20 trillion and $30 trillion of wealth offshore.

As The Observer reports, even at the lower figure, that's "as much as the American and Japanese GDPs put together." Developing countries in particular should note that the amounts their one percenters have squirreled away overseas since the 1970s would be more than
enough to pay off their debts to the rest of the world. An accompanying chart shows that, in Nigeria, for instance, $300 billion in wealth has been secreted out of the country--an amount 40 times the nation's entire foreign debt load.

Where do you find the real cheats and criminals? In the highest echelons of high society.

Tuesday, July 10, 2012

In Accra, Ghana, thousands of street traders who obeyed the government and moved indoors to the newly created Pedestrian Shopping Mall are crying foul about a new burst of competition -- you guessed it! -- from rival street hawkers who have set up outside their building.

GhanaWeb reports that the indoor shopping mall on Kwame Nkrumah Circle is empty because shoppers flock to the hawkers who have set up shop just outside its doors.

"Some shoppers," one indoor trader told the news service, "even say they do not know of the existence of the pedestrian shopping mall." One of the outdoor hawkers offered this riposte: "Customers will not buy even if we are all taken off the street and put
in the mall. Ghanaians are impulsive buyers. When they see the goods on
their way home, they are tempted to purchase them."

The merchants in the Shopping Mall have threatened to retake the streets if the government does not take action. It's a good idea. Why do the authorities always think it is better to force hawkers off the streets?

Friday, July 6, 2012

In a recent article, The Wall Street Journal cites a study of System D by Brazil's Getulio Vargas Foundation to suggest that the shadow economy "distorts competition":

Informal businesses disrupt the normal competitive process that leads to greater productivity over time. Companies that operate outside the law save money by avoiding tax and
welfare payments, allowing them to compete despite being inefficient,
but informality also denies them the possibility of accessing markets
for capital and technology that would improve their productivity. Legitimate, productive businesses lose market share to tax-evading competitors, decreasing their incentives to invest.

The Journal offers this further black market factoid: "39% of Brazil's productivity gap with the U.S. can be explained by the
effects of the shadow economy." (The newspaper cites an unnamed McKinsey study as the source for this stat--but I haven't been able to find it, so I can't say what the number means or how McKinsey's researchers arrived at it.)

So if a company gets a tax abatement from the government, or hides its income by incorporating in the Cayman Islands, doesn't that also distort
competition? And, while tapping bank loans to invest in technology might
improve efficiency, doesn't it also reduce employment. Are
efficiency and productivity really the only economic benchmarks we have?
Or can there be a different economic analysis that sees job growth through System D as a good thing because it grows bottom-up businesses and thus reduces
inequality?

Thursday, July 5, 2012

Three quarters of the workers in Guatemala work in System D, according to this thoughtful article from GlobalPost (via the Alaska Dispatch). But the image the article promulgates -- that informality swallows up these workers and denies them "protections and benefits available to salaried, punch-the-clock
employees — such as minimum wage, regulated hours, insurance, pensions,
and the right to join unions and collectively bargain with employers" -- is overcooked.

Indeed, big businesses all around the globe are attempting to bust unions and trying to shed costly health insurance responsibilities.

Instead of demonizing informal workers, what's needed is a renewed sense of social contract. If street vendors and other informal workers see government working for them, they will work with the government. And if rich people who hire household help would pay a living wage and offer other social protections, like guaranteeing overtime pay for overtime work and providing for the health care needs of the people who care for their kids, the situation would be less dire.

And what if, instead of demanding private property titles as collateral for loans, banks could be trained to give loans based on the social capital informal entrepreneurs represent--essentially providing a pot of money that could be used more in the fashion of venture capital than a traditional loan?

Am I being over-optimistic and all-too enthusiastic? Maybe. But, when 75 percent of the labor force is working off the books, that says that the formal system isn't working for the majority of people. And rather than trying to shoehorn System D into the formal world, doesn't it make more sense to change the structures of the formal world to make room for System D?

Saturday, June 30, 2012

Here's are two interesting factoids courtesy of India's Economic Times newspaper:

1. System D/informal enterprises account for 15 percent of all manufacturing in India.
and
2. System D/informal enterprises account for 90 percent of India's economy.

Of course, that makes System D critical to the future development of the country. Indeed, if System D accounts for 90 percent of the Indian economy, it doesn't make sense to leave it out of any economic development strategy.

Thursday, May 17, 2012

That's the journey of a former Ikea worker in Spain, who used to deliver and assemble furniture for the mega furniture retailer but now does the same thing as part of the informal economy, offering his services to people who exit the big box store. He was laid off by the massive retailer, and now makes half as much as he used to earn, but it's off the books.

Flea markets are flourishing, too. Patricia Aragon Llamas, 31, shows up
every weekend at the Charco de la Pava market to earn about €50 selling
second-hand clothing and shoes.“This market has doubled in size in the past year,” she said. “I’ve got a
3-year-old child and an unemployed husband, so I’m really beyond
thinking about what’s legal or not, as long as it brings in a bit more
money.”

According to The International Herald Tribune, the amount of tax money the Spanish government may be losing to System D could amount to €37 billion -- or $47 billion US.

But that shouldn't be the major concern. People's survival should be. As I reported a few weeks back, Spain has turned into Europe's developing world economy, with an economic outlook that is worse than Nigeria's. Now the official world is recognizing the fact.

“Without the underground economy, we would be in a situation of probably
violent social unrest,” Robert Tornabell, a professor and former
dean of the Esade business school in Barcelona, told the IHT. “A lot of people are now
staying afloat only thanks to the underground economy, as well as the
support of their family network.”

Another professor who has studied the parallel economy in Spain suggests that the government needs to work with it: “Much of the informal economy is nothing but the normal reaction of
low-skilled people who have no alternative once they lose their job,” said Michele Boldrin, an economics professor at Washington University in
Saint Louis, Missouri, who co-authored a study in May on Spain’s
underground economy on behalf of Fedea, an economic research group in
Madrid. “What the government should focus on is reforming the formal
economy to make it more efficient and competitive rather than focus on
pursuing such people.”

But the people in the IHT article are not necessarily low-skilled. And reforming the economy takes a stimulus, not austerity. In the absence of sensible government, System D is the way forward. If the people will lead, the leaders must follow.

Monday, May 14, 2012

Some interesting tweets from ITV News Business Editor Laura Kuenssberg, who's been covering developments regarding Greece and the Euro from, I believe, the London Stock Exchange ...

Traders there reckon 'grey market' in drachmas could get going in a couple of days
— Laura Kuenssberg (@ITVLauraK) May 14, 2012

That's interesting: people are already planning for active trade in a former currency that hasn't been reconstituted yet--the Greek drachma. All it would take is a couple of days for the underground to get it started. Talk about a System D opportunity.

If enough people think drachma may return, it becomes a commodity - traders expect it'd be 1500 drachmas to 1 euro, they joined at 350 to 1
— Laura Kuenssberg (@ITVLauraK) May 14, 2012

Wednesday, May 9, 2012

By the numbers, Ghana's a mind-blowing success. This West African nation's GDP has almost tripled since 2005--an astonishing achievement. Yet this article from The Ghanaian Chronicle (via AllAfrica) points out, workers had little to cheer this past May Day, because, as the country's top labor leader put it, ""The reality is that the unprecedented growth rate has failed to create decent jobs for Ghanaians. Joblessness is on the rise. Nearly all new jobs are being created in the
informal economy, where incomes are low and workers have very little
protection from the country's labour laws."

President John Evans Atta Mills told the paper that the country had met all the fundamental requirements of the International Labour
Organisation, and now stands to receive substantial rewards from the
international community in Ghana's effort to achieving decent conditions and rights for workers.

But what does that mean? Aid instead of trade?

Robust job creation in the informal economy is not the problem. Indeed, it's the way forward to sustainable growth--economic growth that means jobs for people and a better life for the widest possible swathe of the population.

Tuesday, May 8, 2012

Carpooling laws in Jakarta have spawned a new business -- jockeying, or filling the seats in fancy cars so they meet the multi-passenger requirement. This Australian news dispatch [thanks to eagle-eyed Zach C. for catching it and sending it to me] shows how it works:

Hundreds of men, women and children line the main arteries of the
Indonesian capital every weekday, offering to ride in private vehicles
during rush hours, when cars are obliged to carry at least three
passengers on key stretches. The
"jockeys" -- as they are known -- do not stick out their thumbs like
typical hitchhikers around the world. Here, one finger signifies a
jockey working solo, while two offers a pair, usually a mother with a
child in tow or a baby in a batik sling. In a
country where millions are struggling to climb out of poverty and into
an expanding middle class the jockeys -- who charge about a dollar a
ride -- have turned their services into a career.

Meanwhile, the carpooling requirements, meant to cut down on traffic, have had no effect. Indeed, 1,000 additional cars join the cacophony on the city's streets every day--and projections are that in two years time Jakarta's streets could become completely gridlocked, with cars not able to move at all at rush hours.

Back in the 80s, in his book The Other Path, Peruvian economist HernandoDe Soto promulgated the idea that what System D/the informal sector needs is for governments to trim the bureaucracy and make it easy to start businesses. If that happened, de Soto opined, businesses would naturally come in from the cold.

But, as this case study of Rwanda from East African Business Week shows, in the real world, things seldom work the way de Soto thought they would. In Rwanda, it only takes 6 hours to register a business--and the process is free if you do it online. Yet these 'free market' reforms have had no impact. The size of the country's informal sector has not declined. It still makes up 90 percent of the nation's economic activity.

To make formalization even more easy, Rwanda has just approved a new plan that allows businesses with a turnover of less than $20,000 to pay $200 or less in taxes. That's an income tax rate of just 1 percent. Even so, the Commissioner General of the Rwanda Revenue Authority, Ben Kagarama, admits that the new rules "might not necessarily kill the culture of tax evasion" and that he doesn't expect most businesses to sign up.

So what gives?

As the article notes, informal merchants are routinely harassed, brutalized, and arrested by the authorities. In other words, their sole experience of government power is repressive and corrupt. Indeed some people argue that many governments in the developing world are little more than officially licensed thuggish protection rackets.

In countries like Rwanda, System D is the most productive sector of the economy. Politicians need to take concrete steps to build partnerships with informal markets and System D merchant associations. That's how government becomes a legitimate player in the business sphere--by working with System D rather than trying to force businesses to conform to some abstract rules of formality. When System D businesspeople--who are the backbone of the economy--see the government provide concrete benefits to their markets, that's when they will get involved in a positive way in social and political change.

Monday, May 7, 2012

Junks, faux markets and bend-down boutiques: The Guardian reports on the Africa's burgeoning trade in European cast-offs. Critics say the billion-dollar trade risks swamping fragile domestic
textiles markets--and 12 African nations have banned the trade. But the desire for famous designer clothes is not limited to the west, and in urban Africa's thriving System D stalls, customers rub the hems of Gucci and D&G seconds. Money quote:

"We call our shops 'bend down' boutiques because we have so many
clothes we just pour them on the floor and you just bend down and
select," explained Mercy Azbuike, surrounded by piles of clothes
overflowing from her wooden shack and piled into wheelbarrows outside. "Even
those selling clothes in boutiques [proper stores] are buying from us,"
said Azbuike, who also travels to neighbouring Benin twice a month to
replenish her stock."It's the same boutique but you don't have to bend down so it's more expensive."

Wednesday, May 2, 2012

It's well-heeled residents vs. a single food truck on W. 68th Street in NYC. DNA Info reports that some people living in the tony condos there are so angry that a licensed food truck is doing business legally on their block that they've petitioned the city to install parking meters.

The Pot Luck Cafe food truck--co owned by Korean War Vet Eddie Prokopiak and his Nigerian son-in-law Joseph Okolie--has been doing business near the corner of 68th and Broadway for about year. Prokopiak was on the waiting list for a city street food vending license for a decade before getting the go-ahead to open the truck. He spent perhaps $100,000 to outfit his business.

But this lone outpost of street culture on the block has locals feeling "besieged." According to the report, "residents accuse Pot Luck Cafe of creating litter and flashing a bright
neon "Open" sign in its window. They also say the truck takes up too
much space and created a dangerously tight squeeze when emergency
vehicles responded to an oil spill on the block last year." They also assert that the operators have refilled their generator on the street, in violation of city rules.

Prokopiak is philosophical about the residents who are moving to evict his truck. "They don't want us here," he told DNA Info last year. "It's an upscale neighborhood, supposedly, and this type of vehicle is not supposed to be here."

The parking meter proposal, meanwhile has split the block, with 18 residents opposing the idea at a recent community board meeting.

As Bob Dylan so aptly put it Subterranean Homesick Blues back in 1965: "Don't follow leaders. Watch the parking meters."

Friday, April 27, 2012

Spain's official unemployment rate is 24 percent
--and analysts expect it to vault beyond 30 percent.
Unemployment of 16-24 year-olds is now more than 50 percent.
In more than 1 in ten Spanish households, no one holds a job.
In the past year, the Spanish economy has hemorrhaged 100 billion euros (approx. $132 billion).
Analysts expect the country's economy to continue to shrink.

Check out the contrast:Nigeria's unemployment rate is approximately the same as Spain's -- 23.9 percent.
And, as another NYT story reported recently, while Nigeria's urban unemployment is at an unconscionable level--nearly 50 percent for people ages 15 to 24--that's actually better than the situation for young people in Spain.
But the Nigerian economy is, at least, growing by almost 8 percent a year, making it the 3rd fasted growing economy in the world.

Conclusion: in terms of the economic indicators, Spain is now a developing world country.

Thursday, April 26, 2012

92 percent of India's workforce is in the informal sector/System D. That's 460 million people. But, as this op-ed from My Digital Financial Chronicle points out, "from a rights perspective,
this simply means that the ‘formal’ sector policeman can evict the
‘informal’ sector vegetable vendor from the street corner near your
house on a whim."

India's National Association of Street Vendors is trying to re-engineer the way the government thinks about street vendors and other System D workers and to reverse years of systematic repression and discrimination.

(note: a few weeks back, I blogged about a different article that said 94 percent of India's workforce was informal. 94, 92: the exact number is impossible to gauge. But they're both amazingly huge numbers. System D thoroughly dominates the Indian labor market. It's time to stop criminalizing these efforts.)

Wednesday, March 28, 2012

Street hawkers have multiplied recently in New Delhi's Connaught Place, and the Daily Mail newspaper claims that the entrepreneurial invasion is blocking traffic and 'compounding the misery of commuters.' Though the police claim that only 97 vendors work around the circular shopping arena, the newspaper counted 800 street sellers.

I was in Connaught Place late last year--and the big culprit for congestion was the government's rehabilitation plan, which involves tearing up vast swatches of the circular market and is creating massive interference of traffic and pedestrian flow. There were hawkers all around the market--and I can well believe there were 800 of them spread around the various lanes of the Connaught Place installation--but they hardly were the impediment the newspaper makes them out to be. Their stalls were orderly and blocking traffic (the Daily Mail's own photo shows a hawkers market that is not blocking traffic.) Indeed, the biggest impediments in the market were the sad profusion of stray dogs, who seem to be almost universally despised by merchants and commuters alike and the number of empty storefronts--most likely a result of speculation that rents will go up following the completion of the government's rehab effort.

Being punitive towards the hawkers is no solution. Rather, it's important to work with the street vendors to improve conditions for everyone.

Friday, March 9, 2012

Rescinding a ban on street vending passed in late February, the government of Mozambique's capital has vowed that it is not against the city's 80,000 hawkers and roadside sellers, Mayor David Simango has announced.

Simango told vendors from the massive Estrela, Mandela 1 and 2, and Museu markets that he never intended to shut down all street trading and that his hope was only to stop people selling outside schools, hospitals and other sensitive establishments. "We are not against the activity of the informal sector, since we know that people are selling on the streets not out of pleasure, but as a question of need for their survival," the Mayor said. "But we have to find ways of developing informal trade without creating problems for everybody else."

Simango apparently wants vendors to clean the streets around their stalls twice a day (the current requirement is twice a week), to obey the rule requiring them to cease doing business by 9 pm, and to cease doing business on streets near schools and hospitals. While appropriate street cleaning may make sense, the ban on nighttime selling and the idea that vendors should voluntarily leave locations where demand is high seem counterintuitive and counterproductive.

Monday, March 5, 2012

The New York Times & Bay Citizen report on the gun violence that plagues East Oakland's International Boulevard, one of the only streets open to mobile vendors. A five-year-old died on New Year's Eve, hit by a stray bullet from a barrage directed at his father's taco truck.

There are only 34 licensed vendors but 126 members of the recently formed vendor's association--suggesting that the majority of vendors are part of America's informal economy.

Sunday, March 4, 2012

There is an injustice concealed within the justice of the marketplace, since a promise rigorously kept is itself a trap. The two way dealing of buyer and seller works only because of a two-way deception; for each of them always pretends that he has no need of the other.

The same god who will run to the marketplace tomorrow, the one who will ring the opening of the stock exchange; the god of the closing and the final bid; the god who posts under his own name the just prices which are never just.

Without the noise of the street vendors nothing would get done and nothing would be thought.

Two different versions -- one censored by the Chinese authorities, one unexpurgated -- of Tricia Wang's adventures with a family trying to break into unlicensed street vending in Shanghai. It's a tough life, whether censored or uncensored.

[another tip of the fedora to Zach for sending these street stories my way]

Saturday, March 3, 2012

"A place is ecstatically proclaimed (the West), a name is sacralized as unique (the Market, Democracy) and terror is exercised against that which ought not be -- the impoverished planet, the distant rebel, the non-Western and the immigrant nomad that radical abandonment drives towards enriched metropoles."

That's Alain Badiou on the error of totalizing philosophy--and, by extension, the political disaster of the modern world--from his book Conditions. Badiou calls for asserting "the local existence of truths" rather than "offering ecstasy at the place of truth."

Friday, March 2, 2012

Three-quarters of the money in circulation in Tanzania is in the informal economy. "For every Sh100 out there, only about Sh25 is in the formal economy, the rest is buried somewhere in the informal economy," Lawrence Mafuru, the chairman of the Tanzania Bankers Association, told The Citizen newspaper.

Tanzania's formal banking and financial system holds about Sh13 trillion, the paper reports, with approximately Sh2.3 trillion in circulation at any given time. But Mafuru suggested that mobile banking was bringing lots of money from the informal economy in from the cold. “At any given moment of the day about Sh1.5 trillion is transacted in the mobile banking systems,” he said. With only 3 million of the country's 20 million mobile users signed up for mobile banking, informal merchants are likely to find a big upside in joining the bitmap banking revolution.

Tuesday, February 28, 2012

So Occupy London is no more -- evicted after a court fight with the City of London Corporation, the private entity that controls things in the square mile that comprises the central business district of London. Giles Fraser, the former canon chancellor of St. Paul's Cathedral, who resigned last October in protest against the church's plan to work with the City of London Corporation to forcibly remove the Occupy tent city, has penned an eloquent elegy in The Guardian.

To visit Occupy London was to take a huge cultural turn from Zuccotti Park in NYC. No drum circle. No constant harping for funds. No ugly racists using the cacophony as a forum. Instead, when I stopped by in December, theologian Timothy Gorringe, of the University of Exeter, was making a presentation on the religious roots of protest and the occupy strategy in the space that organizers had christened "Tent City University." (This truly public school boasted a great motto: "Anyone can teach, everyone can learn.") After Gorringe finished, the general assembly had a rather angry (though in respectful British style) discussion of whether the group should even hire a solicitor to respond to the court case brought against it -- because to reply to the eviction case was to acknowledge the legal standing of the City of London Corporation.

The occupy encampments around the world were undoubtedly all different. But my experience at the New York site taught me a valuable lesson in organizing. Before I became a writer, I spent a decade working as a community organizer. In the tradition outlined by Saul Alinsky, the groups I organized used confrontation tactics to level the playing field and power relationships. What that meant in practice, however, was that people could come to our meetings passively, as followers. That's because our leadership core had worked out the tactics in advance.

The first time I went to OWS, I didn't get it. The second time, under the tutelage of my girlfriend, I arrived with an old manual typewriter and started banging out manifestos (that's me in the photo above). And with that simple action, I came to understand a new style of organizing. That first time I dropped in on Zuccotti Park, I was passive. I spent the evening listening to Naomi Klein amplified by the people's mike and waiting for someone else to do something. It was an alienating experience. You couldn't join OWS as a follower. You had to bring an action with you -- even something as simple as typing on a typewriter. The Occupy movement demanded active participation.

That was its power.

In the manifestos I pounded out on my 75-year-old Remington Model 5, I dubbed this principle 'un-organizing.' The Occupy Wall Street encampments were not disorganized (indeed, they seemed hyper-organized.) But they were un-organized in the sense that they were open to adopting every person's style of activism and every individual's unique form of action. Un-organizing created a space of true empowerment, an egalitarian and utopian platform. For the time that each individual was there, each was a leader, a spokesperson, a theorist, an organizer, an equal danger to society, an equal contributor to the job of building a better world.

By denying the movement a location, the powers that be have struck at its heart. It's true, as Giles Fraser notes in his Guardian article, that you can't evict an idea. But Occupy was more than an idea. For a short while, there was a place -- an actual, physical space -- for activism in more than 100 cities around the world. Now one more city has ripped that space away. A private entity went to court. The judges ruled. The police rushed in. And they combined to make the world a poorer, meaner place.

System D could be the next center of growth for Uganda, according to this article from The Monitor newspaper.

"With about 800,000 micro, small and medium sized enterprises in Uganda the informal economy growing at about 25 per cent annually employs about 2.5 million people," the article reports -- which means that, as the summary suggests, "Artisans could be the future of this economy if they are given priority in the next financial year."

To that end, Mulangira Juma Kayima, chairman of the Katwe Metal Fabricators Cluster, has asked government to include artisans in next year’s budget -- so that the country can produce more local investors compared to the foreign ones who repatriate the profits back to their countries. As he told the paper, "The government should commend us to be our own investors because we are passionate about improving this country."

Why do nations keep going after street hawkers, when the real criminals are inside government?

As the BBC reports, James Ibori, the former governor of Nigeria's Delta State, bought a London mansion for $2.2 million in cash while his official salary was $25,000 a year. He has now pleaded guilty in UK court to ten counts stemming from accusations of money laundering and grabbing $250 million in state funds to pad his personal lifestyle. The photos show a few of the wads of cash he had stashed in his house.
Ibori's wife, sister, mistress, and even his London solicitor have previously been convicted of money-laundering.

And to think, as the BBC also notes, Ibori once had a clear shot at becoming Nigeria's president!

Thursday, February 23, 2012

Finally, someone's talking some sense about the reality of economic development in Africa.

Here's the money quote from Raju Jan Singh, the World Bank Lead Economist for Central Africa and lead author of a World Bank study of Cameroon, where 90 percent of working people are in the informal economy: "Rather than being viewed as a nuisance operating outside the regulatory framework, the informal sector should be seen as an asset for job creation and a way of giving millions of citizens the opportunity to aspire to economic mobility."

The report -- full text here: http://siteresources.worldbank.org/INTCAMEROON/Resources/CMR_Economic_update.January.2012.pdf -- argues that "recognizing that informal is normal would be the first step in developing effective policies and programs to help households create sustainable enterprises."

Tuesday, February 21, 2012

A new Tennessee law made law has made the techniques used by many moonshiners legal. As The New York Times reports, for decades, Marvin "Popcorn" Sutton made some of the finest home-made whiskey in the U.S. And for his pains he was prosecuted by the FEDs as a bootlegger. Though he took his own life rather than serve an 18-month stint in the slammer, his recipe lives on, because he sold it to a friend. And, with the coming of a new law last October, Popcorn's whiskey is now being produced legally in Nashville.

Aside from being a tragedy, the story of Popcorn's whiskey illustrates the porous film that separates the informal economy and the legal world. The definition is changed by loosening social morays and the government's need for new sources of tax revenues.

Friday, February 17, 2012

India may be a country on the move, but not for street vendors, as this editorial in The Hindu shows:

The recent national consultation on urban street vending has made it clear, despite four decades of struggle, that hawkers and mobile vendors still find Indian cities reluctant to include them. While cities are willing to accommodate on-street car parking, they view handcarts used for vending and providing services on roads as a hindrance.

The paper complains that "cities such as Mumbai and Ahmedabad pursuing irrational cut-off lines which bar a large number of vendors from getting a licence" and, in what might be a first for a major publication, urges the central government to work with the country's more than 10 million street vendors. Let's hope the politicians listen.

Thursday, February 16, 2012

Here's an astounding fact, from an article in livemint: "According to government estimates, the informal sector constitutes almost 94% of India’s workforce and accounts for around 60% of India’s gross domestic product (GDP)."

Why do governments continue to insist that these workers are illegal and their economic actions illegitimate? Should the Indian government be outlawing 94% of India's working population?

The Economist discovers the power of System D--through an examination of the unlicensed taxis that are the backbone of public transportation in Tehran. From the article:

In the absence of formal structures, a sophisticated eco-system of cab options has emerged. Commuters can call a taxi to the door or flag one down on the street to go dar baste (literally, “closed door”), hiring the whole cab for themselves. Or they can walk to the nearest main road and, at any point on the street, jump into one of the passing shared taxis that ply fixed routes up and down that particular street or between major city squares. These shared taxis form a city-wide hub-and-spoke network. Unlicensed cabs look like normal cars, but move slowly as they look for fares, flash their lights at waiting commuters and tend to have the window open just a crack so people can shout their destination at them.

Two commenters provide different takes on the quality of System D taxi systems in other cities:

1. I live in Lima, Peru where there exists a de facto total liberalized and unregulated taxis market (I say de facto because in theory, you would need to be registred to work as a taxi driver). I can tell you one thing about Lima: traffic is a mess, and that's mainly because of the huge supply of taxis that overcrowd the streets. So you have to take in conunt this externality that spreads well beyond this market and, at the end, impacts the city productivy of the country as a whole also in the analysis.

2. I regularly do business in Tanzania. The taxi system there is very like to is in Tehran - if I try and walk I am regularly 'peeped' at by hopeful taxi drivers who want to take me wherever. I will take a taxi, and, if he and I get on, often I will hire him for the time I am in country. He teaches me Swahili and waits for me between meetings. We agree a fair price. I have never had a bad experience. As everyone has mobile phones, if he doesn't know how to get to where I want to go, he phones my client and gets instructions. I love it. I learn a language, make a new friend, and get my work done at a reasonable price. Do I need anything more?

Wednesday, February 15, 2012

I never understood why, when large, profitable companies threaten to move out of New York, they immediately get offered millions in subsidies.

Consider FreshDirect, the online grocery store and food delivery service. The firm floats the idea of a $100 million subsidy offer from New Jersey and gets almost 30 percent more from Mayor Bloomberg--$127.8 million, including $20 million in cash.

The careful language of this New York Times article makes the deal suspect: "The company now plans to build a $112 million complex in the Bronx and over the next 10 years add almost 1,000 jobs to its work force of 1,963," the paper writes, but all Seth Lipsky, the head of Bloomberg's Economic Development Corporation, would confirm is that FreshDirect will invest "tens of millions of dollars" in a new facility. This divergence implies that the highly-touted $112 million investment might not ever happen--and that those 1,000 new jobs might never materialize. Furthermore, does anyone at City Hall think FreshDirect ever thought seriously about the logistics of doing just-in-time deliveries to its overwhelmingly NYC-based customers by running trucks over the always-crowded George Washington Bridge and through the routinely tied-up Lincoln and Holland Tunnels?

This deal reminds me of the 80s, when NBC extorted more than a hundred million from the city for its supposed decision to stay in 30 Rock instead of jumping across the Hudson. Think about the possibilities: Brian Williams broadcasting nightly from NBC's world news headquarters in Secaucus and Tina Fey starring in a sitcom called 1782 Paterson Plank Road.

Monday, February 13, 2012

Informal merchants often pay more to the government than legal merchants do.

I learned this when I met Maina Mwangi, a shoe vendor at Muthurwa Market in Nairobi, and one of the leaders of KENASVIT, the Kenya National Alliance of Street Vendors and Informal Traders.

He offers a particularly acute and specific take on the common complaint that street market vendors don't pay their fair share in government fees and taxes. Maina reports that a typical merchant who rents a storefront in downtown Nairobi pays 7200 Kenyan shillings ($87) per year for a license to do business in the Central Business District. By contrast, for his right to sell from his kiosk, Maina pays Ksh 50 a day to the City Council. That's about 60 cents, which sounds pretty good until you do the math: it's Ksh 1,500 a month or Ksh 18,000 ($217) a year.

The real deal: Maina pays two and a half times more than legal merchants pay for the right to operate downtown. So much for the supposedly unfair advantage street market merchants have over their legal brethren.

Tuesday, February 7, 2012

The Giants won the game, but the informal economy won the betting pool. As this Bloomberg article notes, an estimated $10 billion was wagered on Sunday night's Super Bowl -- and less than one percent of that amount involved bets placed legally. The informal economy really is an American institution.

Thursday, February 2, 2012

But here's the catch: the study only looks at what it calls "illegal capital flight or illicit financial flows" out of Mexico. It covers "all unrecorded private capital outflows that drive the accumulation of foreign assets by residents in contravention of applicable laws and the country’s regulatory framework." As the article notes, "the report finds that the vast majority (80 percent) of the money leaving Mexico does so through a method called “trade mispricing.” This is when a company either undervalues exports or overvalues imports, and agrees with its trading partner (for many this is the same entity or owner) to transfer the balance to a bank account abroad. Just as when a restaurant doing cash business fakes the number of customers it receives to avoid paying taxes, companies doctor their trade records to allow money to flow out of a country untaxed."

So this study only tracks the extent to which elite Mexicans evade the law and sneak their income out of the country.

But the street level economy is far larger than this. Mexico's GDP last year was more than $1 trillion, and the best estimate (from professor Friedrich Schneider) is that the country's shadow economy is equal to approximately 1/3 of that. So Mexico's System D is worth approximately $345 billion. That's some street trade!

[praise be John Conroy -- @informaleconomy -- for linking me to the article]

Call it recycled money, courtesy of System D. John Jones roams the subways collecting discarded Metrocards. The truth about these cards? Not all of them are maxed out. Indeed, many of them have some small amount left on them. Jones estimates that he's salvaged $20,000 in unused fares over the past couple of years. He sells restored $5 fare cards for $4. And that's nothing: unused lost and expired cards amount to as much as $52 million in a year--meaning that lots of competitors could join Jones's business--if they had the desire and fortitude. (The Metropolitan Transportation Authority contributes to that massive amount because many turnstiles only declare "insufficient fare" when you don't have enough money on your card--without telling you that there's actually still some money on your card.

But, instead of saluting a savvy businessman who's come up with a cool discount, the MTA is unhappy with Jones. Indeed, transit cops have arrested him for "unlawful solicitation and illegal access to transit services," the New York Post reports. His crime: not that he's recovering the unused fares, but that he's combining them on new metrocards and reselling them.

The publicity has garnered Jones some unlikely supporters. The Atlantic Magazine's cities blog compared him to Steve Jobs. Benjamin Kabak, of the blog 2nd ave. sagas, who held back from endorsing Jones's resale discount, declared, "I know plenty of people who are aggressive in their pursuits of discarded fare cards." And then there's the brilliant charity called metrochange--which suggests that we all should emulate Jones, and that there should be kiosks in every subway station where people can donate the amounts that remain on their otherwise dead metrocards. And leave it to The Wall Street Journal to offer something that could help Jones better target his scavenging business: a map that shows where the most people buy 'pay per fare' cards--which will often have leftover balances on them--versus where people buy weekly or monthly cards--which are generally not discarded until they are fully used up.

[I owe several free swipes to Zach, who pointed me in the direction of this story]

Tuesday, January 31, 2012

This New York Times article offers a peep at an interesting and progressive program in New York. Rather than reporting unlicensed construction firms to the authorities, the Queens Economic Development Corporation is trying to help them out, teaching them the skills required to pass the licensing test for home improvement contractors given by the city's Department of Consumer Affairs. Interestingly, despite the size of the Chinese community in NYC and their involvement in real estate in many neighborhoods, the city only offers the 30-question multiple choice test in English, Spanish, Korean and Bengali.

This program is a great idea--giving previously illegal contractors a route to legality. But it also raises some issues about the licensing test. For instance, how important is it for contractors to know that, for jobs that cost less than $200, they don't need a license. Or that they must keep their contracts on file for 6 years. Or that they can't start work on a job until 3 days after they sign the contract. Should the test really be administrative--or should it check whether these contractors really know the city's building code? And, speaking of the code, why, for small residential jobs, is bamboo scaffolding, which Chinese contractors have used successfully for years, illegal in New York?

Monday, January 30, 2012

Football is big business--but only one of the teams in this year's Super Bowl has its roots firmly in System D.

The New England Patriots and New York Giants are both massive enterprises. Indeed, Forbes Magazine's valuations for the Patriots and Giants show that they're the 3rd and 4th most valuable franchises in the league, worth $1.4 billion and $1.3 billion respectively. Forbes estimates that the Pats' 2010 EBITDA (earnings before interest, taxes, depreciation and amortization) was $42.9 million while Big Blue pulled in a cool $40.6 million.

But only the Giants still trace their roots directly to System D. Timothy James Mara, the grandfather of current president and CEO John K. Mara, bought the franchise when the National League of Professional Football Clubs expanded into New York in 1925. He paid $2,500.

Tim Mara knew a good deal when he saw one. How did he have such business acumen? Because he was a bookie. Mara placed his first bet when he was 12, and, when he left school a year later, started his illegal gambling operation. Four years before he bought the Giants, he expanded his bookmaking efforts to Belmont Park. There, on an average weekday, he handled bets amounting to between $10,000 and $15,000. On weekends and holidays, his book was worth as much as $30,000.

He took the cash from his System D activities and diversified into other businesses, including the Giants and a coal company. At the same time, however, he was found to be legally destitute. On paper, the Giants were owned by his two sons, while the coal firm was in the name of his wife and brother. As for his bookmaking concern? Mara swore that he was just the manager and had no actual financial interest in it. But, as A.J. Liebling wrote in an appreciative profile of the wily entrepreneur, "Tim's destitution does not interfere with his enjoyment of life. Daily he visits the various business enterprises in which he has no financial interest." And he lived in a pauper's palace--an eight-room apartment at 975 Park Ave.

Today, the Giants and the Patriots are both wildly profitable formal operations. But you know which team I'm rooting for.

(for more background on the founder of the New York Giants, read "Turf and Gridiron," by A.J. Liebling, which ran in The New Yorker on Sept. 18, 1937 and also appears in The Telephone Booth Indian, Liebling's classic compendium about all things System D in NYC.)

**And here's another reason to root for the Giants: one of Tim Mara's great granddaughters, the actress Rooney Mara (she stars in 'The Girl With the Dragon Tattoo') heads the board of the Uweza Foundation, which supports empowerment programs for children and families in Kibera, the largest mud hut community in Nairobi, Kenya.**

Sunday, January 29, 2012

Here's a jarring juxtaposition. The heads of state gathered at the Masters of the Universe conference in Davos Switzerland (aka the World Economic Forum) are talking of allocating 22 billion euros to combat youth unemployment in Europe. By contrast, in a report late last year, Al Jazeera asked if Senegal -- the West African nation whose total GDP is less than half the amount the Europeans are discussing and where an economic analyst reports that "less than three per cent of the population" receives a formal salary every month while the rest rely on "informal revenue" -- was experiencing "an African renaissance."

Annie Diouf makes her money informally. She works in Sendaga, Dakar's largest market, selling fabrics. "I got started in this business, because earlier I worked for a company and with inflation and the global crisis companies started shutting down in Senegal and because I didn't think I would find a job, I decided to work in the informal sector of the economy," she says. The work is hard and involves spending long hours in the sun and rain, often with little to show for it. With little faith in the government to improve their lot, Diouf and a few of her colleagues have taken matters into their own hands."We got organised, we put together a women's association so we can stand by each other. We pool our profits together and give the money to one of the women on one day and she buys the material for her stall, the next day another woman goes out and does the same," Diouf explains.

This is not to minimize the pressure on Europe's young people. But self-starters will fare better in this chastened and debt-ridden world. Europe has some things it can learn from Senegal. Informal collectives can spark an economic renaissance.

Wednesday, January 25, 2012

The New York Times offers a peek into the scads of money at stake in the football game pitting the New York Giants vs. the New England Patriots. And a few tidbits on the World Series and the NCAA tourney.

But, hey, is all this gambling part of the informal economy or the formal? Are the big winners paying tax on those earnings?

Bire Nikil moved to Port Moresby from Chimbu Province in the highlands to start a food garden several years ago. At Gordons Market, he is surrounded by five of his relatives who assist him with growing and selling kaukau (sweet potato), bananas, aibika (Pacific cabbage), pineapples, peanuts, watermelon, mangoes and coconuts, all transported in by public minibus. Nikil’s weekly income of K300 (142 dollars) supports 20-25 people, including relatives in Chimbu province.

I love Papua New Guinea's policy statement that the informal economy constitutes "the grassroots expression" of the private sector.

About Me

I spent most of the past four years hanging out with street hawkers, smugglers, and sub-rosa import/export firms to write Stealth of Nations, a book that chronicles the global growth of System D--the parallel economic arena that today accounts for half the jobs on the planet.
Prior to that, I lived in squatter communities across four continents to write Shadow Cities, a book that attempts to humanize these vibrant, energetic, and horribly misunderstood communities.
My articles on cities, politics, and economic issues have appeared in many publications, including Harper's, Scientific American, Forbes, Fortune, The Nation, The New York Times, The Washington Post, Metropolis, and City Limits. Before becoming a reporter, I worked as a community organizer and studied philosophy. I live in New York City and do most of my writing on manual typewriters.